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Questions and answers on the strategy review

What is the strategy review about?

Every economy needs a safe and stable currency. The ECB’s main task, as the central bank for the euro, is to secure price stability in the euro area.

To guide our monetary policy decisions the ECB relies on a monetary policy strategy which sets out the coordinates, approaches and policy orientations by which we achieve our aim. We want to ensure our strategy is fit for purpose and helps us fulfil our mandate of keeping prices stable. So, together with the 19 national central banks of the euro area, we have started to review our strategy. The review is not about what we do but how we do it.

We are looking at:

  • what precisely we mean by “price stability”, that is, what rate of inflation we should aim for;
  • the way we analyse the economy, to ensure we see risks to price stability in good time and understand how our decisions affect stakeholders like consumers, companies, markets and banks;
  • how issues such as employment, social inclusion, climate change and financial stability are also relevant as we pursue our mandate;
  • the monetary policy instruments we use, including interest rates and asset purchases;
  • the way we connect to and communicate with you, because the euro is a public good and we want all citizens to understand our mission and decisions.

Why is the ECB reviewing its strategy now?

Since our last strategy review in 2003 we have seen fundamental changes in the economy. Declining growth and the legacy of the financial crisis have driven interest rates down, making it harder for the ECB and other central banks to ease monetary policy when economic growth is slow. As a result, our set of instruments has expanded. Developments like globalisation, digitalisation, an ongoing ageing population and climate change also pose new challenges to the economy. We want to make our monetary policy strategy as effective as possible in this challenging and changing environment – both today and in the future.

There are a few issues that have prompted us to launch a review.

Historically low interest rates. Rates are low for several reasons: the pace at which economies are growing over time is slowing, productivity (how efficiently we work) in most advanced economies is growing more slowly and the population is ageing. Slowing productivity and a declining active population drive down interest rates. An ageing population saves more money, which pushes interest rates down further.

Limits to lowering interest rates. Traditionally, central banks raise interest rates when inflation is too high. When inflation is too low interest rates are lowered to support economic activity. Current interest rates are close to zero or even negative, making it harder for the ECB and other central banks to lower rates in the typical way during periods of slow growth and low inflation. New instruments – non-standard monetary policy measures such as the asset purchase programmes – have been put in place to respond to these limits and ensure price stability.

Climate change, ongoing globalisation, rapid digitalisation and changing financial structures. These trends can have unexpected effects on the world, on the way the economy functions, and so also on our monetary policy.

What is the timeline of the strategy review?

We launched the review on 23 January 2020. The conclusion of the strategy review has been postponed from the end of 2020 to the second half of 2021 owing to the coronavirus pandemic.

How can citizens have a say?

As part of the strategy review we are collecting input from a wide range of stakeholders. We want to better understand people’s expectations and concerns to find the best way to fulfil our mandate of price stability.

Citizens had the chance to share their input via the ECB Listens Portal until the end of October 2020.

ECB Listens – Summary report of the ECB Listens Portal responses

We have hosted a series of conferences and workshops across the euro area and national central banks are continuing with their events. We want to hear from everyone, including the general public and civil society organisations.

ECB Listens – Midterm review summary report More information on the national listening events

How will the strategy review affect current monetary policy?

The ECB’s monetary policy assessment every six weeks remains separate from the strategy review – we are conducting two different exercises. The purpose of the review is to make the ECB’s monetary policy strategy fit for years to come. In the meantime, the Governing Council will continue to monitor the evolution of the economy and inflation and take its decisions as appropriate.

Our current monetary policy strategy

Why do you say it is not about what we do but how we do it?

Our aim is laid down in the EU treaties. So our review covers all aspects of our monetary policy strategy, taking our mandate as given. We are being thorough in our assessment and we are approaching the exercise with an open mind.

EU treaties

Will this also change how you supervise banks?

This strategy review covers different aspects of our monetary policy and does not encompass the ECB's role in banking supervision. The way we supervise banks is independent from how we conduct monetary policy.

Banking supervision

How will you keep me informed about the strategy review?

We will provide regular updates on the strategy review process at our web-streamed ECB press conferences every six weeks, on our website and on our social media channels.

Strategy review hub page Press conferences ECB social media channels

Will you share input you receive from your listening exercises during the review?

Yes. We publish summaries of the comments we receive from our listening exercises on our digital channels. Take a look at the reports below, which summarise what we have heard so far.

ECB Listens – Summary report of the ECB Listens Portal responses ECB Listens – Midterm review summary report

When did you last conduct a strategy review?

The initial ECB monetary policy strategy was set out in 1998, the year that the ECB started its work. We evaluated and clarified this strategy in 2003.

Do other central banks also review their strategies?

Yes, other central banks also carry out strategy reviews. For example, in the United States, the Federal Reserve System started a review in 2019 which is now completed. In the UK, the Bank of England announced a year-long review process in January 2020. The Bank of Canada conducts a review of its inflation target every five years.

Looking for more information on the strategy review?